Brazilian rate cut catches markets off guard The Financial Times February 21 2002

Brazil's central bank surprised financial markets on Wednesday night with its first interest rate cut in seven months, strengthening investorconfidence in an economic rebound this year and easing fears of economic contagion in the region from Argentina.

The bank's monetary policy committee reduced its overnight lending rate (Selic) by 25 basis points to 18.75 per cent. It said the reduction was "compatible with the convergence of the inflation rate to its target". The government's year-end inflation target is 5.5 per cent. The bank maintained a "neutral bias", meaning it is unlikely to change rates before its next monthly meeting in March.

A typical central bank strategy in past crises in the region has been to lift interest rates to attract investment in the fixed rate market. This is what countries did in 1999, when Brazil was forced to devalue the Real. While Wednesday's rate cut is modest and leaves inflation-adjusted interest rates above 13 per cent, it could help accelerate a recovery in consumer confidence, which has been battered by last year's power crisis and Argentina's economic turmoil.

Lower interest rates, one of the principal demands of Brazil's business sector, could also increase the popularity of the government ahead of presidential elections in October. According to the latest consensus forecast published by the central bank, the market expects interest rates to fall to 17 per cent by year- end and to 14.1 per cent by the end of 2003. According to the same forecast, gross domestic product is expected to grow 2.4 per cent this year, up from an estimated 1.7 per cent last year.

1- According to the text, the recent cut in the Brazilian interest rate wasa) a misplaced sign of confidence in the economy.b) a result of the crisis in Argentina’s economy.c) designed to attract investment over seven months.d) a sign of confidence in Brazil’s economic recovery.e) an unexpectedly large cut in a modest interest rate.

2- According to the article, in 1999, Brazil a) devalued its currency and raised its interest rates.b) began to suffer fallout from the crisis in Argentina.c) lowered its interest rate on account of devaluation.d) attracted only a modest rate of foreign investment.e) suffered a surprise fall in growth of almost 17%.

4- The phrase “last year’s power crisis” refers toa) domestic political problems in 2001.b) the effects on the world of the September 11 attacks.c) regional political problems in South America.d) changes in the government in 2001.e) the shortage of electricity in Brazil in 2001.

5- The writer comments that the interest rate cut maya) be too modest to stimulate real growth in the Brazilian economy.b) please business people and gain support for the government.c) help Brazil to overcome a forecast of negative GDP growth.d) assist the economy to overcome the effect of the year’s elections.e) leave inflation-adjusted interest rates at an extremely low level.

A typical central bank strategy in past crises in the region has been to lift interest rates to attract investment in the fixed rate market. This is what countries did in 1999, when Brazil was forced to devalue the Real.

Lift = RaiseCurrency=Moeda/Divisa

3- CThe government's year-end inflation target is 5.5 per cent

Target=Goal= Meta/Objetivo

4- EShortage = Falta/Queda/Carência/Déficit

5- Bstrengthening investor confidence in an economic rebound

Ou seja agradaria aos homens empresários.

To Please=Agradar

Lower interest rates, one of the principal demands of Brazil's business sector, could also increase the popularity of the government ahead of presidential elections in October

Remember the triumph of Anglo-Saxon capitalism? Not many do. The nations that inspired the late-20th-century boom in global trade and profited most greatly from its advance no longer define its rules. What the radical individualists of the United States and Britain failed to recognize was how few poor nations had joined the global system by the turn of the millennium: two dozen at best. More than 100 were left out. Now, as more poor nations join the international trading game, they have increased their share of world trade by more than half. They are demanding a greater say in the global system, led by nations that most opposed the “Americanization” of global trade and culture: India, China, Brazil.

This new force looks to Europe for inspiration. As a result, the governors of globalization – the International Monetary Fund, World Bank and World Trade Organization – are no longer led by the United States, but by consensus, similar to the EU (European Union). The global rules are cracking down on multinationals that order mass layoffs or grow too powerful for local comfort. Global capitalism is now truly continental.

1- According to the text, poor nationsa) currently influence decisions in relation to global trade.b) no longer play a major role within the global trade context.c) have been leading the global trade boom for the last decade.d) will probably participate in the international trade game.e) have slowed the growth of international trade.

2- According to the author, global capitalisma) was born in Asia.b) is undergoing changes.c) should exclude certain regions.d) encourages the monopoly.e) was refused by the USA.

3- The text refers to the emerging role played bya) the USA along with Asia.b) India along with the USA.c) Africa along with the USA.d) the poor nations as well as by Europe.e) the USA along with Brazil.

4- According to the text,a) consensus has been achieved since the early 90s.b) Brazil kept its leading role during the 1980s and 1990s.c) rules might have been defined in relation to global trade.d) Americanization is unavoidable in the poorest regions.e) the EU serves as a model within the global trade context.

5- The text mentions mass layoffs, which meansa) the hiring of under-qualified employees.b) the huge increase of certain trade tariffs.c) the dismissal of numerous employees.d) the disregard for environmental issues.e) the disrespect for local legal requirements.

As a result, the governors of globalization – the International Monetary Fund, World Bank and World Trade Organization – are no longer led by the United States, but by consensus, similar to the EU (European Union).

Remember the triumph of Anglo-Saxon capitalism? The nations that inspired the late-20th-century boom in global trade (...)What the radical individualists of the United States and Britain failed to recognize (...)

As a result, the governors of globalization – the International Monetary Fund, World Bank and World Trade Organization – are no longer led by the United States, but by consensus, similar to the EU (European Union).

The first component of the Fiscal Stabilization Program encompasses the approval of constitutional and legal reforms in areas such as social security, labor, public administration and taxes, as well as the introduction of a Fiscal Responsibility Act, addressing fundamental fiscal issues at the three levels of government (Federal, States and Municipalities) and the three branches of government (the Executive branch, Congress and the Judiciary).

The second component is the Plan of Action for 1999-2001 which fulfills the commitment of President Cardoso to present a medium term fiscal program aimed at stabilizing the debt/GDP ratio. It was formulated with the purpose of guaranteeing stabilization, creating the necessary environment for growth as well as protecting the Real against speculative market pressure. Measures contemplate the reduction of budget expenditures as well as revenue increases. They should create the basis for a reduction of interest rates in a short period of time. Particular attention is attached to the main cause of fiscal desequilibria, namely the social security deficit at the three levels of government.

1- According to the text, constitutional and legal reformsa) could have been included in the Brazilian Fiscal Stabilization Programb) have been imposed by the International Monetary Fundc) would have to be formulated by the three branches of governmentd) have been included in the Brazilian Fiscal Stabilization Programe) have been monitored by public and private servants

3- According to the text,a) the debt/GDP ratio has been stable over the last decadeb) the Plan of Action 1999/2001 establishes the dismissal of public employeesc) reducing the budget expenditures would deepen the fiscal desequilibriumd) protecting the Brazilian currency is one of the major concernse) market pressure would contribute to lower the levels of inflation

4- The social security deficita) ought to have been addressed in the present programb) may cause fiscal desequilibria within the period 1999/2001c) will be generating deeper fiscal desequilibria in the futured) would have been included in the present program, if necessarye) is seen as a key element in the fiscal imbalance

5- What elements are intended to be decreased?a) The GDP and the international debtb) The standard of living and the GDPc) The budget expenditures and the interest ratesd) The local interest rates and the foreign GDPe) The social security deficit and the GDP